INTERNATIONAL BUSINESS REPORT (2500 words)

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International Business: Actions(III)
Business Functions within the MNCs

Business College

School of Management

Key Learning Objective

This session will help you to understand the concepts of:

1) Internationalisation of business organisations

2) Key international business functions

3) Complexities of choices and approaches in internationalisation

Aims of the Session:

To understand aspects of various functions in the international business organisations.
To consider the benefits and problems of the internationalisation in human resource and knowledge management in IB organisations.

Key Questions

What are the key functions in the process of internationalisation of firm?

How does international business organisation manage its internal operations?

How does international business organisation manage its external operations (e.g. relationship with the host country/communities)?

Recap

We looked at the concept of ‘internationalisation’ of firms and rationale behind their decision-making process.

Advantages and Risks of internationalisation

http://www.youtube.com/watch?v=KGfrN8jvgko : a BBC report on China and Chinese Business Expansion.

Corporate Governance within the MNC

Corporate governance refers to the way in which company boards oversee the running of the corporation by its managers and how board members are accountable to shareholders and the company in general (Johnson and Turner, 2010)

The corporate Governance for IB organisation:
Issues to be aware of

Company Transparency;
Relationship with stakeholders in the host countries;
Shareholder rights;
Labour relations;
Fair competition;
Tax and pension policy;
Disclosure requirement.

(Source: Brooks et al, 2004)

Function: International Human Resource Management (IHRM)

IHRM is distinct from generic HRM on two grounds:

The complexity of operating across multiple national environment.

Employing different national categories of workers.

This function requires careful attention from MNC.

Tapping the World’s Innovation Hot Spots
(Source: Gao, 2009)

Changing dynamics of global innovation: “What are the implications of this new “Innovation World?”

System Integration Approach: companies can take advantage of the differences in national environments through innovation arbitrage

4 Innovation Models: some exist in pure form while others are a component of a nation’s overall innovation strategy

Model 1: The Focused Factory

What is a focused factory?

Clear strategic intent

Infrastructure

Talent

Examples: Denmark, Singapore (Biopolis, Fusionopolis)

Key players: GSK, Novartis.

Model 2:Brute Force

What is “Brute Force”

Large source of low-cost labour

Innovation opportunities

Law of averages

Examples: India, China

Players: Microsoft, Berkshire Hathaway

Model 3: Hollyworld

What is “Hollyworld

- Forming a global creative class (Silicon Valley Effect)

Developing an enticing innovation destination

Examples: India/ Singapore

Model 4: Large Scale Ecosystems

Large-Scale Ecosystems : end to end innovation systems

Self-contained environments

Alliance-management skills needed

Examples: Finland – Focus on education, science and technology (Aalto university)

Driving Forces of Global Innovation

Innovation as a currency of global competition- pursuing the “global dream”; countries in-source American culture

Global war for talent- talented young innovators can be attracted anywhere through incentives and opportunities

Innovation as a national agenda- nations increasing embrace innovation as a national priority

Power of networks – global networks are becoming increasingly intertwined

Activity 1:

How could each of these companies take advantage of the innovation models?
You will be divide into groups and please select one of these companies.
Brainstorm how leveraging these models could benefit the strategic way the company do business.
Share with the class.

IHRM: Approaches to Staffing

Factors affecting approaches to staffing

General staffing policy on key positions at headquarters and subsidiaries

Constraints placed by host government

Staff availability

Ethnocentric

Polycentric

Geocentric

Regiocentric

Ethnocentric

Strategic decisions are made at headquarters;
Limited subsidiary autonomy;
Key positions in domestic and foreign operations are held by headquarters’ personnel;
PCNs manage subsidiaries.

Polycentric

Each subsidiary is a distinct national entity with some decision-making autonomy;
HCNs manage subsidiaries who are seldom promoted to HQ positions;
PCNs rarely transferred to subsidiary positions.

Geocentric

A global approach - worldwide integration;
View that each part of the organization makes a unique contribution;
Nationality is ignored in favor of ability:

Best person for the job;

Color of passport does not matter when it comes to rewards, promotion and development.

Geocentric Staffing Requirements

(Source: Brooks et al, 2008)

Regiocentric

Reflects a regional strategy and structure;
Regional autonomy in decision making;
Staff move within the designated region, rather than globally;
Staff transfers between regions are rare.

Ethnocentric Approach

Advantages:

To ensure new subsidiary complies with overall corporate objectives and policies

Has the required level of competence

Assignments as control

Disadvantages:

Limits the promotion opportunities of HCNs, leading to reduced productivity and increased turnover among the HCNs
Longer time for PCNs to adapt to host countries, leading to errors and poor decisions being made
High cost
Considerable income gap, high authority, and increased standard of living may relate to lack of sensitivity

Polycentric Approach

Advantages:

Employment of HCNs eliminates language barriers, avoids adaptation of PCNs, reduces the need for cultural awareness training programs
Employment of HCNs allows a multinational company to take a lower profile in sensitive political situations
Employment of HCNs is less expensive
Employment of HCNs gives continuity to the management of foreign subsidiaries (lower turnover of key managers)

Polycentric Approach

Disadvantages:

Difficult to bridge the gap between HCN subsidiary managers and PCN managers at headquarters ( language barriers, conflicting national loyalties, cultural differences)
HCN managers have limited opportunities to gain experience outside their own country
PCN managers have limited opportunities to gain international experience
Resource allocation and strategic decision making will be constrained when headquarter is filled only by PCNs who have limited exposure to international assignment

Geocentric Approach

Advantages:

Ability of the firm to develop an international executive team

Overcomes the federation drawback of the polycentric approach

Support cooperation and resource sharing across units

Disadvantage:

Host government may use immigration controls in order to increase HCNs employment
Expensive to implement due to increased training and relocation costs
Large numbers of PCNs, HCNs, and TCNs need to be sent across borders
Reduced independence of subsidiary management

Regiocentric Approach

Advantages:

Allow interaction between executives transferred to regional headquarters from subsidiaries in the region and PCNs posted to the regional headquarters

Provide some sensitivity to local conditions

Help the firm to move from a purely ethnocentric or polycentric approach to a geocentric approach

Disadvantages:

Produce federalism at a regional rather than a country basis and constrain the firm from taking a global stance

Staff’s career advancement still limited to regional headquarters, not the parent country headquarters

Parent-Country Nationals

Advantages

Organizational control and coordination is maintained.
Rising stars are given international experience.
PCNs may be the best people for the specific job due to special skills and experience.
An assurance that the subsidiary will comply with company objectives & policies.

Disadvantages

Promotional opportunities of HCNs are limited.
Time and performance costs associated with adaptation to the host country.
PCNs may impose an inappropriate HQ style.
Compensation for PCNs and HCNs may differ.

Host-Country Nationals

Advantages

Language and other barrier eliminated
Reduced hiring costs
Continuity of management
Government policy may require hiring HCNs
Possible increased morale because of increased career potential

Disadvantages

Hiring of HCNs may encourage a federation of national rather than global units
HCNs have limited career opportunity outside the subsidiary
Control and coordination of HQ may be impeded
Hiring HCNs limits opportunities for PCNs to gain foreign experience

Third-Country Nationals

Advantages

Salary and benefit requirements may be lower than for PCNs.
TCNs may be better informed than PCNs about host-country environment.

Disadvantages

Transfers must consider national animosities.
Host government may resent hiring TCNs.
TCNs may not want to return to their own countries after assignment.

Determinants of IHRM Approaches and Activities

Activity 2: Management of IHR policies

An Australian mining company (operating in Laos, Cambodia and Chile) is facing HR crisis. They can’t retain their staff and need some ideas to improve their policies. In your team please discuss the best IHR policy for the industry, company and explain why your team consider that policy.

Reasons for International Assignments

Position filling, e.g.

Skills gap, launch of new endeavor, technology transfer

Management development

Training and development purposes, assisting in developing common corporate values

Organizational development

Need for control, transfer of knowledge, competence, procedures and practices

Types of International Assignments

Short term: up to 3 months

Troubleshooting

Project supervision

A stopgap until a permanent arrangement is found

Extended: up to 1 year

May involve similar activities as short-term assignments

Long term

Varies from 1 to 5 years

The traditional expatriate assignment

Roles of an Expatriate

Agent of direct control
Agent of socialization
Network builder
Boundary spanner
Language node
Transfer of competence and knowledge

A Glamorous Life

International business travelers cite the positives as:

Excitement and thrills of conducting business deals in foreign locations

Life style (top hotels, duty-free shopping, business class travel)

General exotic nature

But a High Level of Stress!

Home and family issues

Frequent absences

Work arrangements

Domestic side of position still has to be attended to

Travel logistics

waiting in airports, etc.

Health concerns

Poor diet, lack of sleep, etc.

Host culture issues

Limited cultural training

Various Roles of Corporate HR

Centralized HR Companies	Decentralized HR Companies	Transition HR Companies
Large well-resourced HR departments	Small HR departments	Medium-sized HR departments
Key role: Managing all high-grade management positions worldwide	Key role: Managing elite corporate managers	Key role: Management and development of senior managers and expatriates
Key activities: Planning international assignments and performance management globally, identifying high-potential staff	Key activities: Influencing operating units to support international assignments, supporting decentralized HR	Key activities: Persuading divisional managers to release key staff using informal and subtle methods, strategic staffing.
Source: Based on H. Scullion and K. Starkey, in Search of the Changing Role of the Corporate Human Resource Function in the International Firms, International Journal of Human Resource Management, V 11, N 6 (2000) pp. 1061-1081.

RMIT University

Slide *

Reasons for Expatriate Failure

US multinationals

Inability of spouse to adjust

Manager’s inability to adjust